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The Bank Failure Rate, Economic Conditions and Banking Statutes in the U.S., 1970–2009

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  • Richard Cebula
  • James Koch
  • Robert Fenili

Abstract

Given the significance of bank failures for the economic health and stability of the U.S., it is imperative to have insights into factors that systematically influence bank failures, including major federal government banking statutes that are implemented. Accordingly, this exploratory study investigates factors influencing the bank failure rate in the U.S. over the period 1970 through 2009, with emphasis on two major banking statutes, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (RNIBA). After allowing for a variety of economic and financial variables in the U.S. over the study period, the evidence strongly implies also that FDICIA acted to reduce bank failures whereas RNIBA (presumably by increasing competition and/or increasing costs through branch bank expansion) induced a net increase in bank failures in the U.S. Copyright International Atlantic Economic Society 2011

Suggested Citation

  • Richard Cebula & James Koch & Robert Fenili, 2011. "The Bank Failure Rate, Economic Conditions and Banking Statutes in the U.S., 1970–2009," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(1), pages 39-46, March.
    • Handle: RePEc:kap:atlecj:v:39:y:2011:i:1:p:39-46
    DOI: 10.1007/s11293-010-9258-7
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    References listed on IDEAS

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    1. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
    2. David C. Wheelock & Paul W. Wilson, 2000. "Why do Banks Disappear? The Determinants of U.S. Bank Failures and Acquisitions," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 127-138, February.
    3. George J. Benston & George G. Kaufman, 1997. "FDICIA after Five Years," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 139-158, Summer.
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    Cited by:

    1. Ghosh, Amit, 2017. "Do bank failures still matter in affecting regional economic activity?," Journal of Economics and Business, Elsevier, vol. 90(C), pages 1-16.
    2. Richard J. Cebula, 2011. "Impact of Banking Statutes, Housing-Market, Economic, and Financial Conditions on Bank Failures in the U.S, 1970-2008: GARCH Estimates," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 2(1), pages 23-30, March.
    3. Pan, Huiran & Wang, Chun, 2013. "House prices, bank instability, and economic growth: Evidence from the threshold model," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1720-1732.
    4. Youngkyung Ok & Jungmu Kim & Yuen Jung Park, 2019. "The Effect of Housing Prices on Bank Performance in Korea," Sustainability, MDPI, vol. 11(22), pages 1-14, November.
    5. Lin, Ching-Chung & Yang, Shou-Lin, 2016. "Bank fundamentals, economic conditions, and bank failures in East Asian countries," Economic Modelling, Elsevier, vol. 52(PB), pages 960-966.

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    More about this item

    Keywords

    Bank failures; Economic factors; Financial factors; Banking legislation; G18; G20; G21;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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